US economy leading the way out of recession 🏦 🏁

February 05, 2024

Week of February 5th, 2024

Welcome to AI8’s weekly newsletter, your ultimate source for curated insights and updates from the dynamic world of venture capital!

We've scoured the vast landscape of the web to bring you a comprehensive roundup of the industry’s top news articles, all in one convenient place. We keep you ahead of the game and in the know about all things related to the vibrant world of investments

🦄 STARTUPS

ROUNDS AND UNICORNS

  1. Generate Capital, renewable energy: raised $1.5 billion from a variety of investors, including California State Teachers’ Retirement System. Generate invests in an array of infrastructure projects, from community solar systems to municipal wastewater treatment to electrifying fleets

  2. Kore.ai, artificial intelligence: raised a $150 million round led by FTV Capital. The round also included participation from Nvidia, the startup offers an array of artificial intelligence-related tech from virtual assistants to no-code tools to build AI apps

  3. Zum, transportation: raised a $140 million Series E led by GIC, Zum tries to help school districts increase efficiencies and reduce the costs of managing bus fleets through its proprietary platform, giving districts visibility so they can optimize routes and even deliver real-time updates to parents

  4. Cour Pharmaceuticals, biotech: raised a $105 million Series A co-led by Lumira Ventures and Alpha Wave Ventures. The firm focuses on the development of disease-modifying therapies to treat patients with autoimmune and inflammatory diseases

  5. Inari, agtech: raised a $103 million equity round, the startup uses AI-powered predictive design and multiplex gene editing to develop corn, soybean and other higher-yielding seeds that require less water

Several major technology acquisitions have faced challenges and cancellations due to regulatory objections, particularly from European and U.K. antitrust regulators. The latest instance is Amazon's proposed $1.35 billion acquisition of robot vacuum maker iRobot, which was terminated by Amazon, citing "undue and disproportionate regulatory hurdles"

  • In total, more than $70 billion worth of planned acquisitions by American tech companies have been halted due to regulatory scrutiny from EU and UK antitrust authorities

  • Regulatory concerns have contributed to a slowdown in technology M&A activity, with heightened expectations of increased antitrust enforcement

  • Cash becoming more expensive and fluctuations in startup valuations have also played roles in the slowdown, with acquisitions of venture-backed startups reaching an eight-year low in the past year

In 2023, acquisitions of venture capital-backed companies hit a decade-low, with 151 seed-stage startups in the US being acquired, the lowest since 2017. However, acquisitions of more mature companies, including Series A and later-stage firms, reached a 10-year low. Many of the acquisitions involved younger startups, with about 70% at the seed stage

  • The trend is attributed to a challenging fundraising environment and founders being enticed to sell early

  • The difficulty in raising new capital and the rarity of secondary share sales at the Series A stage contribute to the appeal of early exits. However, some investors may be dissatisfied with these deals, as the returns may not significantly impact their funds

  • Another common type of sale in 2023 was "soft landings," where companies not meeting growth expectations returned investors' money when acquired

INDUSTRY WORLDWIDE

In 2023, the global excitement over artificial intelligence, particularly driven by ChatGPT, reached a peak worldwide. In China, where ChatGPT was inaccessible, companies raced to develop their own AI models. However, despite initial enthusiasm, venture capital investment in China's AI sector significantly declined, with a 38% drop in investments and a 70% decrease in total funding compared to the previous year

  • China's AI startups faced unique challenges, including the global slowdown in VC investments, reduced American venture capital due to U.S.-China tensions, and uncertainties about listing Chinese tech firms on U.S. stock markets

  • Major tech giants took the lead in developing China's equivalent of ChatGPT, while less-funded startups explored niche applications using open-source or domestic models

  • China's large language models encountered difficulties due to a shortage of AI chips, exacerbated by the U.S.-China tech war and an export ban on Nvidia's high-end GPUs to China

🏦  ECONOMIC SNAPSHOT

The Organisation for Economic Co-operation and Development (OECD) has cautioned major central banks against easing their fight against inflation too soon. While global economic growth is proving resilient and inflation in the US and Europe is easing, the OECD warns that underlying price pressures may not be durably contained

  • The organization notes factors contributing to easing, such as improved supply chains and lower commodity costs, are diminishing or reversing

  • Despite expectations of rate cuts, the OECD advises central banks to move more slowly than they did with previous rapid hikes, emphasizing the need for a restrictive policy stance in major economies for some time

The U.S. labor market added 353,000 jobs in January 2024, surpassing economists' forecasts and reflecting strong wage growth. Despite higher interest rates, the job gains suggest resilience in the labor market

  • The unemployment rate remained steady at 3.7%, and wage growth increased by 0.6% in January, reaching 4.5% over the past 12 months

  • The unexpectedly robust employment data may influence the Fed's decision on rate cuts in 2024, as markets anticipate potential easing later in the year

  • Fed Chair Jerome Powell emphasized the importance of data dependence and expressed the desire for continued strong growth and a robust labor market while aiming for a sustained decline in inflation

The latest data from the Bureau of Economic Analysis reveals that the US economy is not only avoiding a recession but is outperforming its G7 peers. Real GDP for the fourth quarter of 2023 came in at an annualized rate of 3.3%, surpassing expectations and beating growth rates of G7 nations

  • The US has consistently led in economic growth since the pandemic, with a total GDP growth of 7.4% since Q4 2019

  • Strong consumer spending, government expenditure, and exports contributed to the robust growth, and the International Monetary Fund raised its global growth forecast, largely driven by better-than-expected US expansion

Private equity deal values saw a notable increase in the last quarter of 2023, rising by 58.1% compared to the previous quarter and reaching $147.6 billion, a six-quarter high. Although the full-year deal volume in Europe and North America declined, the surge in the fourth quarter suggests potential for increased activity if interest rates see cuts later in the year

  • Global private equity fundraising reached $139.9 billion in Q4, with North America-focused funds accounting for 77.2% of total capital closed

  • Despite the positive sentiment, 66% of private equity investors plan to deploy less than $50 million in fresh capital, reflecting an increase in smaller fund commitments

🧑🏿‍🤝‍🧑🏽 IMPACT & DIVERSITY

The American Alliance for Equal Rights has challenged an Atlanta venture fund's grants for Black women entrepreneurs, arguing that the Fearless Fund Management’s grant contest for Black-women-owned businesses is illegal discrimination under Section 1981 of the Civil Rights Act of 1866. The U.S. Court of Appeals for the Eleventh Circuit is set to hear the case, which has already led to a pause in the grant program

  • Section 1981 was enacted by Congress in the post-Civil War Reconstruction era to address cultural barriers and state laws that hindered the progress of formerly enslaved Black Americans

  • Advocates argue that corporate diversity policies, designed to rectify past racial injustices by incorporating racial preferences, emphasizing the importance of remedial race-conscious programs for creating a more equitable economic environment for the Black community

  • Opponents of Diversity, Equity, and Inclusion (DEI) programs, however, contend that Section 1981 and other federal laws categorically prohibit all forms of racial discrimination, irrespective of the races involved

ESG (Environmental, Social, Governance) investing has experienced a decline in fund flows. During the pandemic boom in 2021, U.S. sustainable funds reached a record $358 billion in assets, up from $95 billion in 2017. However, in 2023, sustainable fund flows experienced their worst year on record, decreasing by $13 billion

  • Sustainable funds underperformed traditional funds in 2023, contributing to the drop in investor appetite

  • While sustainable funds underperformed in 2023, a separate study indicated that ESG portfolios had up to 6% excess returns annually compared to benchmark indexes between 2014 and 2020

🚀 IPOs

India is experiencing a surge in initial public offerings (IPOs) driven by an optimistic economic outlook, improved corporate earnings, and strong foreign investor demand. In January, 21 IPOs raised about $678 million, compared to $17 million in the same period the previous year

  • Some concerns are emerging about the poor performance of many IPOs in Mumbai, with analysts cautioning that a 20% rise in India's benchmark Sensex stock index over the past year has led to historically elevated equity valuations

  • India's IPO market gained momentum last year, raising almost $8 billion, and the country's stock market capitalization surpassed Hong Kong to become the world's seventh-largest market

Social media platform Reddit has reportedly chosen the New York Stock Exchange as the venue for its upcoming initial public offering. This decision is seen as a win for NYSE in its longstanding listings battle with rival Nasdaq

  • Reddit, initially filed for an IPO with the US Securities and Exchange Commission in late 2021 but postponed going public due to challenging macroeconomic conditions

  • The move to list on NYSE is considered a positive sign for the US IPO market after a period of limited activity

  • Reddit aims for an initial valuation of at least $5 billion, according to sources, compared to its $10 billion valuation in a 2021 private fundraising round

  • The IPO is expected to take place in march

In 2023, there were 154 Initial Public Offerings (IPOs) on the U.S. stock market,  markimg a 15% decrease compared to 2022 and an 85% decline from the record number of 1,035 IPOs in 2021. The worst-performing IPOs in terms of percentage return as of December 29, 2023, include:

  1. U Power Limited (Energy) - Ticker: UCAR, Return: -97%

  2. Lucy Scientific Discovery (Healthcare) - Ticker: LSDI, Return: -94%

  3. Mangoceuticals (Healthcare) - Ticker: MGRX, Return: -93%

  4. Surf Air Mobility (Transportation) - Ticker: SRFM, Return: -92%

  5. Hanryu Holdings (Media) - Ticker: HRYU, Return: -92%

Here are the best-performing U.S. Initial Public Offerings (IPOs) from 2023, ranked by their percentage return as of December 29, 2023, based on data from Stock Analysis. The healthcare sector dominates the top-performing IPOs, with four out of the top 10 in this category. The top IPOs include:

  1. Jin Medical International (Healthcare) - Ticker: ZJYL, Return: 3000%

  2. RayzeBio (Healthcare) - Ticker: RYZB, Return: 245%

  3. Alpha Technology Group (Technology) - Ticker: ATGL, Return: 218%

  4. Structure Therapeutics (Healthcare) - Ticker: GPCR, Return: 172%

  5. ICZOOM Group (Technology) - Ticker: IZM, Return: 160%

🗞️ AI8 VENTURES HIGHLIGHT

Alpha Impact 8 Ventures is thrilled to share our latest insights into the dynamic world of investments with our 2023 Venture Capital Report, here’s an updated version that dives into the ever-evolving landscape of financial markets.Just a few months ago, Michael Burry, the legendary fund manager who famously profited from shorting the US housing market in 2008, bet more than $1.6 billion on a Wall Street crash by shorting the S&P 500 and Nasdaq-100. Warren Buffett’s money pile reached record highs of $157 billion as Berkshire Hathaway disposed of a net $33 billion of stocks over the past three quarters. Is there something Buffett and Burry know that the rest of us don’t?Check out the full updated report here

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Happy reading,

AI8’s Research & Performance Team

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